New EU audit reforms of Public Interest Entities could open up £10bn market for advisers, according to new research

James Nickerson
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Gilbey said the reform to PIEs could open up new opportunities (Source: Getty)

New EU audit reforms affecting Public Interest Entities (PIEs) that come into effect today could open up a £10bn market for advisers, according to new research from accountancy and business advisory firm BDO.

PIEs will be required to tender their statutory audit at least every decade, while mandatory audit rotation will be enforced every 20 years.

The directive is far-reaching, also considerably restricting the non-audit services that can be provided by external auditors to PIEs, by imposing fee caps and a service blacklist.

The changes, according to BDO, which analysed 895 UK registered listed entities, mean £10bn worth of audit and non-audit services could swap hands between accountancy firms in the next ten years due to the new legislation.

While BDO predicts the big ticket audits will be well defended by current auditors, it thinks the separation of non-audit services is likely to require more radical change.

Read more: The EU Audit Directive – trying to make sense of it all and what it means for businesses and their accountants

The non-audit fees of UK registered PIEs provide a huge opportunity for non-Big Four firms to win conflict work and build relationships and credibility with businesses, BDO said.

The objective of the directive is to improve auditor independence, the quality of audit reporting and the level of competition in the audit market. It also aims to restore public confidence in the role played by statutory auditors in the financial reporting process.

Jo Gilbey, partner at BDO, said: "Today marks a turning point for the profession. EU audit reform has played a big role in the quality and independence of the audits of large companies in the last few years. With the referendum looming large, there’s never been more discussion around EU law affecting UK business.

"We have always believed audit reform is a long-term game. Genuine opportunities to win the larger company audits are likely to come to fruition in the second round of rotation. That said, the opportunities presented now are vast, particularly in the non-audit services market."

Alex Barnes, insurance partner at Moore Stephens, agreed with Gilbey that the directive will have a significant impact.

"As the EU debate reaches its climax, the latest piece of regulation affecting the industry has come into force today. The EU Audit Directive will have a significant impact on how insurers engage with their provider of audit and non-audit services, and will affect companies of all shapes and sizes," he told City A.M.

"It remains to be seen if this regulation will still be applicable to UK companies after the 23 June. But for now, the Audit Directive has arrived and will tentatively begin its job to restore confidence and improve competition in the sector," Barnes added.

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